Verisk Analytics, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are USD millions, except per-share data.
Business context
Verisk provides data analytics and decision-support solutions through Insurance, Energy and Specialized Markets, and Financial Services. Insurance generated about 73% of revenue in the first nine months of 2021. Revenue is largely subscription-based and commonly billed in advance.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $759.0 | $702.7 | $2,232.6 | $2,071.2 |
| Operating income | $288.9 | $275.4 | $806.7 | $787.5 |
| Net income | $204.9 | $185.8 | $524.5 | $536.5 |
| Net income attributable to Verisk | $201.7 | $185.8 | $524.3 | $536.5 |
| Diluted EPS attributable to Verisk | $1.24 | $1.12 | $3.21 | $3.24 |
| Operating cash flow | $285.2 | $207.1 | $967.1 | $819.2 |
| Capital expenditures | $61.4 | $64.8 | $183.1 | $174.4 |
Revenue grew 8.0% in Q3 and 7.8% year to date. Q3 net income attributable to Verisk rose 8.6%; nine-month net income attributable to Verisk fell 2.3%, and diluted EPS declined 0.9%. Nine-month operating cash flow less capital expenditures was $784.0 million, versus $644.8 million in 2020.
Q3 consolidated EBITDA was $378.7 million, up 3.4%, with a 49.9% margin versus 52.1%. Nine-month EBITDA was $1,095.0 million, up 4.4%, with a 49.0% margin versus 50.7%. EBITDA is a non-GAAP measure. Q3 net income margin was 27.0%, versus 26.4%; the nine-month margin was 23.5%, versus 25.9%.
Segments and material period changes
- Insurance: Revenue increased 10.6% in Q3 and 10.2% year to date; excluding acquisitions and dispositions, growth was 7.7% and 7.6%. Growth reflected pricing, expanded solutions, catastrophe modeling, repair-cost estimating, and claims analytics.
- Energy and Specialized Markets: Revenue increased 5.0% in Q3 and 5.1% year to date, supported by environmental health and safety subscriptions, research, and consulting.
- Financial Services: Revenue fell 12.7% in Q3 and 11.8% year to date. Management cited nonrecurring projects, lower consulting and bankruptcy revenue, and the impact of government support and forbearance programs. Nine-month EBITDA fell to $12.0 million from $37.6 million.
- Operating expenses increased faster than revenue in Q3, including SG&A up 19.4%. Verisk attributed higher personnel costs in part to resumed hiring after pandemic-related pauses. Nine-month results also faced a higher tax provision, including the deferred tax effect of the U.K. rate increase from 19% to 25%; 2020 included $19.4 million of gains on business dispositions.
- Interest expense declined 15.5% in Q3 and 5.9% year to date, partly because Verisk repaid its 5.8% senior notes in May 2021.
Liquidity, debt, and capital allocation
At September 30, 2021, cash and cash equivalents were $302.1 million; cash plus available-for-sale securities was $306.7 million. Current assets were $934.1 million and current liabilities were $1,843.1 million. Management says the working capital deficit is customary for its prepaid-subscription model and that deferred revenue generally does not require a direct cash outflow.
Total debt on the balance sheet was $3,109.7 million, including current debt and finance lease liabilities. Senior notes had aggregate principal of $2.7 billion. The $1.0 billion revolving credit facility had $405.0 million drawn and $589.9 million available, net of letters of credit. Verisk reported compliance with debt covenants; it made $20 million of facility repayments after quarter-end. The company repurchased $400 million of shares and paid $141 million in dividends in the first nine months.
Outlook, risks, contingencies, and unusual items
- Guidance: The filing provides no specific financial guidance. Management expects cash, operating cash generation, and credit-facility access to support working capital, capital expenditures, and growth plans.
- COVID-19: Management reported stable operations, minimal customer-facing interruption, and no significant customer losses, collection deterioration, liquidity reduction, or subscription-renewal decline. It said about 85% of revenue had no material pandemic impact identified; certain transactional businesses remained affected, including auto and travel insurance, building engineering access, energy capital spending, and financial-services advertising.
- Patent litigation: Eagle View obtained a $125 million jury award, later trebled by the court to $375 million, plus interest and limited attorneys’ fees. Verisk had recorded a $125 million reserve; appeal remained pending, and Verisk had posted additional bonds. Eagle View also sought contempt proceedings alleging that Verisk’s Roof Underwriting Report violated the injunction; expedited discovery was ongoing.
- Other disclosed matters include ERISA, Medicare Secondary Payer Act, Jornaya wiretap, Leica contract, and Platts/Wood Mackenzie data-licensing litigation, plus an ongoing U.S. Attorney’s Office inquiry concerning Financial Services government contracts. Verisk said it could not reasonably estimate potential liability for these matters.
- Subsequent events included an approximately $135 million agreement to acquire ACTINEO, subject to regulatory approval, and the November 2 acquisition of Data Driven Safety for $93.2 million. Purchase-price allocations for 2021 acquisitions remained preliminary.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no off-balance-sheet arrangements and no material change in contractual obligations outside the ordinary course.
Important facts for investors to verify
- Track the Eagle View appeal, contempt proceeding, injunction scope, and potential exposure above the recorded $125 million reserve.
- Assess whether Financial Services revenue and profitability recover, and whether its declines remain tied to pandemic effects and nonrecurring projects.
- Monitor the U.K. tax-rate effect on the effective tax rate and earnings, separating deferred tax impacts from ongoing operating performance.
- Review revolver borrowings, debt maturities, share repurchases, dividends, and funding needs for announced acquisitions.
- Check final acquisition accounting and integration results for Ignite, Roskill, Whitespace, ACTINEO, and Data Driven Safety.